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A recent decision of the United States Court of Appeals for the Federal Circuit exemplifies the continuing lack of clarity regarding what constitutes patent-eligible subject matter.

U.S. patent law, specifically 35 U.S.C. § 101, states that a patent may be obtained for “any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof.” Courts have long recognized three judicially-created exceptions to these broad categories of patent-eligible subject matter, namely, “laws of nature, natural phenomena, and abstract ideas.” Unfortunately, these three exceptions are not clearly defined. The recent case of CLS Bank Int’l v. Alice Corp.Pty. was a potential vehicle for the Federal Circuit to clarify this unsettled area of patent law. Instead, the case starkly illustrates the continued lack of consensus in the judiciary regarding what comprises patent-eligible subject matter.

The Federal Circuit provided a fractured opinion in CLS Bank Int’l, confusing the analysis of what constitutes a patent-ineligible abstract idea. In light of this decision, it is important to note that patents and patent applications are evaluated under the law as it currently stands, not the law as it existed at the time the application was filed or when the patent issued. If an inventor files a patent application today, receives an issued patent four years later, and that patent is challenged two years later, the judicial landscape six years hence may bear little resemblance to the morass of today. Whether this thought brings relief or trepidation is a separate matter entirely.

For software developers seeking patent protection, we suggest that extra effort be used to provide a broad, thorough, and detailed specification in any patent application. Once filed, the specification of an application cannot be amended to include new matter. As the law changes and hopefully clarifies over the next several years, it may be necessary to amend the claims in the application to adapt to the changes. A strong specification will help ensure that support is available for any amendments which may become necessary.

In the case at issue, Alice Corp. owned patents relating to a computerized trading platform used for conducting financial transactions in which a third party settles obligations between a first and a second party so as to eliminate “counterparty” or “settlement” risk, i.e., when only one of the two parties actually pays its obligation. CLS Bank filed suit against Alice, seeking a declaratory judgment that its banking activities did not infringe Alice’s patent rights on the basis that Alice’s patent claims were drawn to ineligible subject matter. Alice’s patents included three sets of claims, respectively directed to the invention as a method, as a system, and as computer-readable media. The district court, after assuming that Alice’s claims required use of a computer, still declared all claims invalid for being directed to an abstract idea. The court concluded that claims reciting a method of conducting financial transactions were “directed to an abstract idea of employing an intermediary to facilitate simultaneous exchange of obligations in order to minimize risk.” Moreover, claims reciting a system for conducting the transactions were also ineligible, as they “would preempt the use of the abstract concept.” Similarly, Alice’s claims reciting computer-readable media containing program code failed on the same ground as “directed to the same abstract concept despite the fact they nominally recite a different category of invention.” Alice appealed the district court’s decision to the Federal Circuit.

On consideration of the appeal en banc, the issue became further muddled as ten judges of the Federal Circuit released seven different opinions. None of the seven opinions garnered majority support, although seven of the ten judges agreed with the district court that the method and computer-readable media claims lack subject matter eligibility. Only five Federal Circuit judges affirmed the district court’s holding that the system claim lacked subject matter eligibility.

Exploring the opinions in further detail, five judges agreed with the district court and confirmed that the system, method, and media claims were invalid for failing to recite patent-eligible subject matter. These judges set forth a procedure for determining whether a computer-implemented claim recites patent-eligible subject matter or falls into the exception for abstract ideas. The first step is to determine whether the claimed invention fits within one of the four categories set forth in § 101, namely, a process, machine, manufacture, or composition of matter. Assuming this condition is met and concerns of abstractness remain, the fundamental concept or idea associated with the claim must be identified and defined. The inquiry next proceeds by evaluating the claim to determine whether it preempts the full abstract idea, or whether it contains additional substantive limitations that narrow or confine the claim. Put another way, the claim should reflect a genuine human contribution to the claimed subject matter that is more than a trivial appendix to the underlying abstract idea. If such a contribution is present, then the claim recites patent-eligible subject matter.

Four judges would reverse the decision that the system claims were not patent-eligible. They opined that the key to assessing computer implemented claims is to question whether the claims tie an otherwise abstract idea to a specific way of doing something with a computer, or a specific computer for doing something. If so, the claims are likely patent-eligible, unlike claims directed to nothing more than the idea of doing that thing on a computer.

In a separate dissent, the same four judges expressed concern that the “abstract idea” exception to patent-eligible subject matter has been needlessly expanded, putting hundreds of thousands of issued patents at risk. The judges opined that recitation of specific mechanical system components in the system claims should be an important factor in determining that the claims are not directed to an abstract idea. Colloquially put, “[w]hen you walk up to the § 101 gate holding a computer in your arms (or software for that matter), you should not be rejected because your computer is an abstract idea.”

Of these four judges, two agreed that the method and media claims were not patent-eligible. However, they came to this conclusion for different reasons than those set forth by the five judges. Disagreeing with the analytical procedure proposed by those five judges, the two judges opined that the method claim, viewed as a whole, embraces using an escrow to avoid risk of one party’s inability to pay – an abstract concept. When claim elements are viewed individually, they only recite the steps inherent in that concept, stated at a high level of generality, and implement those steps according to methods long used in escrows. These judges also considered it important that the method claim did not recite the use of a computer or other machine.

The other two judges of that group of four would reverse the decision that all claims are not patent-eligible. While the group of five judges concluded that all claims are tainted by reference to the same abstract concept, these two judges asserted that all claims are grounded by the same meaningful limitations. These judges propose that the group of five judges greatly erred by focusing on a fundamental concept or idea associated with a claim instead of focusing on the claim itself. The trial court construed the claims in favor of Alice Corp., finding that the method and media claims require the computer-implemented limitations of the system claims. With these limitations, these two judges believe that the method, media, and system claims all include meaningful limitations such that they do not preempt all commercial uses of an abstract idea, and should thus all be patent-eligible.

The final judge disagreed with both the group of five judges and the group of four judges. This judge opined that patent eligibility should be interpreted broadly, and that all inventions falling within the statutory classifications of “process, machine, manufacture, or composition of matter” should be eligible for protection without reliance on judicially-created concepts such as abstractness, inventiveness, and preemption.

Apart from the Supreme Court, the judges of the Federal Circuit provide the final word on interpretation of patent law. As is evident from the plurality of opinions, there is a great amount of legal uncertainty regarding the patent eligibility of inventions which could be considered to incorporate an abstract idea. The legal landscape is especially murky in the field of computer-implemented inventions. The judges of the Federal Circuit have offered several mutually exclusive tests for determining patent eligibility and it is unclear which, if any, will be followed by courts in later cases or by the Patent and Trademark Office when examining patent applications.

Brian is an attorney in the firm's Lexington office, a member of the firm's Corporate Services Department, and Chair of the Intellectual Property Practice Group. A registered patent attorney with degrees in molecular biology ...